Quotation of the Day…

What was new in [Keynes's] The General Theory was the disappearance of inherited past investment (working through multiperiod production as analyzed by Jevons, Bohm-Bawerk, and Wicksell) from the theory of what determines the volume of consumable output. All focus was now on current-period investment and other current expenditures (consumption, government spending, net purchases by the rest of the world) as determinants of current output.

I continue to be mystified why any economists take Keynesian economics – as opposed to some of Keynes’s obiter dicta - seriously. As the passage above from Larry makes clear, Keynes implicitly assumed that all the microeconomic relationships in a slumping economy are just dandy or are insignificant and so, either way, can be ignored by manipulators of macroeconomic policy. Relative prices; the structure of relationships between different capital goods; the time necessary for capital to be reconstituted and redeployed (history does matter); and the legal, political, and cultural underpinnings of economic activities and relationships – these are not incidental doohickies in an economy. Nor are these phenomena ones that can be legitimately scientifically cabined off by themselves, labeled “microeconomic,” and safely ignored while “macro” economists focus on “aggregate demand” independently of these other phenomena. But that’s what too many modern macroeconomists – especially Keynesians – do.